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A Decomposition Approach for a Class of Economic Equilibrium Models

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  • Frederic H. Murphy

    (Temple University, Philadelphia, Pennsylvania)

  • Murthy V. Mudrageda

    (Maritrans Management Services, Inc., Philadelphia, Pennsylvania)

Abstract

In this paper we present the theoretical foundations for one of the methods used to achieve convergence in the National Energy Modeling System (NEMS). NEMS is a large model with several component models that are built and operated by different branches in the organization and is an example of a system without a hierarchical structure that cannot be solved by traditional equation solving methods. Some of the component models use linear programs to construct supply and demand curves. The discontinuities that result lead to oscillations in the standard relaxation algorithms. We explain where the convergence problems lie and how the convergence theory with step functions links to the convergence theory with continuous functions. To achieve convergence within the entire system, a set of ad hoc techniques were developed to implement a decomposition strategy that allows the individual models to be run separately. We present the theoretical justification for one of them here. The technique presented here has the potential to allow an organization to use operational models for planning without resorting to aggregation. It also facilitates decentralized computing over Internet.

Suggested Citation

  • Frederic H. Murphy & Murthy V. Mudrageda, 1998. "A Decomposition Approach for a Class of Economic Equilibrium Models," Operations Research, INFORMS, vol. 46(3), pages 368-377, June.
    • Handle: RePEc:inm:oropre:v:46:y:1998:i:3:p:368-377
    DOI: 10.1287/opre.46.3.368
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    References listed on IDEAS

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    Cited by:

    1. Murthy V. Mudrageda & Frederic H. Murphy & Steve Welch, 2004. "Developing Strategies for Maritrans’ Business Units," Interfaces, INFORMS, vol. 34(2), pages 149-161, April.
    2. Fuller, J. David & Chung, William, 2008. "Benders decomposition for a class of variational inequalities," European Journal of Operational Research, Elsevier, vol. 185(1), pages 76-91, February.
    3. William Chung & J. D. Fuller & Y. June Wu, 2006. "A New Decomposition Method for Multiregional Economic Equilibrium Models," Operations Research, INFORMS, vol. 54(4), pages 643-655, August.
    4. J. Fuller & William Chung, 2005. "Dantzig—Wolfe Decomposition of Variational Inequalities," Computational Economics, Springer;Society for Computational Economics, vol. 25(4), pages 303-326, June.
    5. Christensen, Adam & Hobbs, Benjamin, 2016. "A model of state and federal biofuel policy: Feasibility assessment of the California Low Carbon Fuel Standard," Applied Energy, Elsevier, vol. 169(C), pages 799-812.
    6. W. Chung & J. Fuller & Y. Wu, 2003. "A New Demand-Supply Decomposition Method for a Class of Economic Equilibrium Models," Computational Economics, Springer;Society for Computational Economics, vol. 21(3), pages 231-243, June.
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    8. Steven A. Gabriel & Andy S. Kydes & Peter Whitman, 2001. "The National Energy Modeling System: A Large-Scale Energy-Economic Equilibrium Model," Operations Research, INFORMS, vol. 49(1), pages 14-25, February.
    9. William Chung & J. David Fuller, 2010. "Subproblem Approximation in Dantzig-Wolfe Decomposition of Variational Inequality Models with an Application to a Multicommodity Economic Equilibrium Model," Operations Research, INFORMS, vol. 58(5), pages 1318-1327, October.
    10. Frederic Murphy & Axel Pierru & Yves Smeers, 2016. "A Tutorial on Building Policy Models as Mixed-Complementarity Problems," Interfaces, INFORMS, vol. 46(6), pages 465-481, December.

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    Economics; large-scale systems;

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